How French Wine Is Using Legal Loopholes to Avoid the 25% Import Tariffs

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Halfway between Orlando and Tampa, the city of Winter Haven, known for its LegoLand, hardly seems appealing to French winemakers. And yet, French wine producers and importers have recently turned to these Florida marshes as a place to find hope in the face of the 25% import tariffs imposed on French wines since late October by the Trump administration.

It is on the ultra-modern bottling lines of Florida Caribbean Distillers, based in Winter Haven, that the deal is being made. Known for its production of rum and sangria, the company announced a few days after the tariffs against French wine went into effect, the launch of a new rosé, “Le Roséy,” produced in the Nîmes region by the wine-growers’ group Vignobles & Compagnie. But unlike other French wine products, the wine in question will not be affected by the new tariffs because it is bottled in the United States after being imported in bulk. The tariffs adopted by the American administration only apply to wines imported in bottles of less than two liters. Above that, no additional taxes to pay!

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For Florida Caribbean Distillers, this is a godsend. “We have been working on this project of importing wine, bottled in our company, for some time,” says Dave Steiner, the company’s sales manager. “Wine, and in particular rosé, is the category that is doing particularly well in our alcohol sector. We wanted to enter this market. And suddenly, these tariffs arrive and give us a 25% price advantage!” The wine is primarily sold in the eastern United States and the midwest, and targets the mass market: some 600,000 bottles will be available for sale at around $9.90 at retail.

Obviously, the launch did not go unnoticed among French importers and distributors. Owner of Empire State of Wine, a retailer in New York, Eddy Le Garrec says he and his importing partners have “found a bottling plant in Montreal” and plans to import in bulk the rosé from Provence that his customers love. “It will cost us even less than importing the bottles before the tariffs. Ultimately, with these sanctions, they may have done us a favor,” he says.

For his part, the representative of a major producer in the Rhône Valley who does not wish to express his opinion publicly on the exploitation of this loophole, confirms: “we immediately began to look at the possibility of importing in bulk and bottling here. But the problem is that there is little capacity on the bottling lines.” Above all, setting up a new supply and trade chain to move from bottle imports to bulk imports can be very time-consuming and require disproportionate investment if the sanctions only a short time.

On the other hand, there is another loophole in the US sanctions system that is already being fully exploited. Only wines with an alcohol by volume content (ABV) of less than 14% are affected by the tariffs. The American administration has never explained this decision — nor the choice to not impose tariffs on champagne and other sparkling wines, for example — but it uses the traditional distinction in American regulations between table wine (less than 14% ABV) and liquor wine (more than 14% ABV). However, the reality of production is that many wines are in fact very close to this limit. “Testing the alcohol level is not an exact science,” says an industry expert. “As a result, the authorities traditionally tolerate a margin of error.” Thus a table wine tested at 13.8% can quite legally be labelled as 14.2% and avoid the 25% tariff. In addition to this gray area, the effect of a drought on the 2018 vintage — which constitutes the bulk of imports at the moment — has increased the sugar content, and therefore the alcohol content, of many productions, bringing them into the category of over 14%.

But if these two loopholes of American regulation are fueling many conversations in the French wine industry in the United States, their effect, like that of sanctions more generally, is for the moment difficult to measure. “What we see above all,” noted the French Embassy, “Is that there has been an increase in orders between the announcement of the sanctions in August and their implementation in October. This is what we have advised the industry on our side.” Eddy Le Garrec of Empire State of Wine did exactly that: “I have very large stocks, I won’t import any more until the end of the year.” The retailer went even further, using the tariffs as a marketing argument: “I sent special offers to my customers telling them that these were the last bottles before the price increase.” As a result, sales more than doubled in October.

But this windfall effect is by nature limited in duration. The first bottles arriving in the United States after the additional tariffs come into effect will only just begin to arrive at retailers. “And there, loopholes and other tricks will not be enough, we will have to fight over prices,” notes Antonin Bonnet, export director of Maison Chapoutier in New York. The Rhône producer has split the difference with his importer: “we are lowering our prices by 12% and the importer by 11% to compensate for the total tax.” Several American distributors simply cancelled orders from producers who did not agree to lower their prices to compensate for the tax.

In 2018, France sold one billion euros of still wines (those affected by the additional taxes) to the United States. The French Ministry of Economy estimates that the new tariffs could cost the French wine industry up to €300 million over a full year. Some of the people in charge of the sector are even more alarmist. Antoine Leccia, president of the Fédération des exportateurs de vins et spiritueux de France (FEVS), said he “feared a drop in sales of around 50%.”

Featured image: Stock Photos from Paolo Paradiso / Shutterstock